NAMIC Letter Defends Credit-Based Insurance Scoring

05/12/2010

Credit-based insurance scores take an individual's financial history into account during the underwriting process.

The National Association of Mutual Insurance Companies recently wrote a letter to U.S. Representatives Luis Gutierrez and Jeb Hensarling on the benefits of these practices, which are currently being examined in a hearing by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.

NAMIC pointed to previous research showing that credit-based insurance scoring is less discriminatory than other approaches. This technique takes credit information as well as other personal financial factors into consideration in order to determine the likelihood of a consumer filing a claim. Those who have strong credit, therefore, are often given lower premiums because they are less prone to create a loss.

"Furthermore, consumers benefit from insurance scoring because it keeps the insurance marketplace competitive, resulting in lower prices, better service, and more product choices," the letter said.

Factors used in creating a credit-based insurance score include mortgage and student loans, quantity of credit cards, debt utilization ratios, the age of credit accounts and the various types of credit a consumer has access to, according to the Insurance Information Institute.

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